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Labour Cess Inapplicable to Material Supply and Consultancy: Jharkhand HC at Ranchi

Contents News/Article Date: 1st October 2023

Relating to which Act: The Indian Constitution grants the Central and state governments the powers to enact laws to protect the employees and foster a professional work environment. Based on the industry, nature of the work, number of employees in the company, location, and more, there are various legislations like the Industrial Disputes Act 1947 (ID Act), Factories Act 1948 (Factories Act), and Shops and Establishment Acts in relevant states (S&E Act).  

Applicable to which State: Acts and Rules are applicable to all States

Type: Important Judgements on Labour Cess Inapplicable to Material Supply and Consultancy: Jharkhand HC at Ranchi

Pertains to: Establishments and Employees in all types of Organizations running businesses for profit or non profit  

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And in this instance :

Case Name: State of Jharkhand Vs M/s.Flowmore Limited

Appeal Number: L.P.A. No. 511 of 2022

W.P.(C) No. 3835 of 2020

Date of Judgement/Order: 27-Jul-2023

Subject: Labour Cess Inapplicable to Material Supply and Consultancy: Jharkhand HC at Ranchi


Appended is the complete news item

Labour Cess Inapplicable to Material Supply and Consultancy: Jharkhand HC at Ranchi

In a pivotal decision by the Jharkhand High Court, the application of Labor Cess on material supply and consultancy charges was examined. This stemmed from the case between the State of Jharkhand and Flowmore Limited. The court delved into the applicability of the Labor Cess, especially in contracts distinct from civil works.
ANALYSIS: The Jharkhand High Court’s judgment was rooted in the understanding of contracts and their demarcation. The Court scrutinized the nature of the contract between the State and Flowmore Limited, distinguishing it into two components: one for material supply and another for construction. The crux of the dispute was the inappropriate deduction of Labor Cess from the bills related to material supply and consultancy charges, areas where the cess shouldn’t be applicable according to the Building and Other Construction Workers Welfare Cess Act, 1996.

The Court also took into consideration precedents set by the Supreme Court in similar cases. One such significant reference was the Uttar Pradesh Power Transmission Corporation Ltd. case, wherein the apex court ruled that supply contracts fell outside the ambit of the Labor Cess Act.

CONCLUSION: The Jharkhand High Court’s ruling provides clarity on the nuanced application of Labor Cess, particularly differentiating between supply and construction components of contracts. This verdict is significant as it reiterates the need for precise adherence to legal guidelines while deducting cesses, ensuring that parties are not unjustly burdened. Further, the Court directed to refund the Labour Cess deducted against the M/s.Flowmore Limited bill for supply of material and consultancy charges giving liberty to the writ petitioner to approach the appropriate authority claiming interest thereon.

Case Name : State of Jharkhand Vs M/s.Flowmore Limited 
Appeal Number : L.P.A. No. 511 of 2022
W.P.(C) No. 3835 of 2020
Date of Judgement/Order : 27-Jul-2023

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